SFS Cyprus to raise EUR 270 mln for shipping, property, venture capital

SFS Group, the well-diversified financial services, shipping and property group is racing ahead with plans to set up multiple funds to invest in property, shipping and venture capital and to raise EUR 270 mln before the end of the year as it fulfils an ambitious target to become one of the leading asset management groups in Cyprus.

SFS Vice Chairman and CFO, Philip Larkos, told the Financial Mirror in an exclusive interview that the objective is to significantly boost the asset and fund management business and make the Group one of the key players in terms of size and diversity of funds available for investment.

“I have personally set high standards as to where our (SFS) funds under management will reach by 2009,” said Larkos. SFS currently has EUR 100 mln in funds under management.

The shipping fund, due to be launched by September/October aims to raise USD 200 mln (EUR 170 mln), the Cyprus Property fund, due to open by October plans to raise EUR 100 mln, while the venture capital fund, also due to open some time in September is targeting to raise EUR 20 mln.

Larkos said SFS Group also plans to set up another property fund that will invest in south-east Europe and Cyprus, and another which will invest in capital markets in Cyprus and abroad.

 

— Profits more than in ’99

Larkos is particularly pleased with the performance of the SFS Group, which last week issued an official profit revision, forecasting net profits of CYP 16 mln (EUR 27.4 mln) for 2007, double the net profit of CYP 8 mln delivered in 2006, and for the first time, will exceed the CYP 15.04 mln booked in 1999, at the height of the CSE bull-run.

SFS previously had forecast net profit of CYP 10 mln (EUR 17.2 mln) for 2007.

The higher forecast was due to favourable business conditions in the three main areas of activity (shipping, property and financial services) in addition to the sale of a significant stake in Athena Cyprus Investments (ATH) to the Hellenic Bank and the recent sale of property in Paphos, which generated CYP 4 mln in additional profits.

 

— Clear and visible earnings

Shareholders’ net equity is forecast to climb to CYP 60 mln (EUR 100 mln), a significant improvement from CYP 37 mln in 2006 and CYP 33 mln in 1999 while net debt is set to decline to CYP 30 mln (EUR 51 mln) at the end of 2007, down sharply from CYP 68 mln at end-2006.

“Return on equity for 2007 is on track to reach 35%, well above the ROE of 25% for 2006 and our minimum target of 20%,” said Larkos, adding that unlike other CSE listed companies, there will be no attempt to push some of the bumper profits of 2007 to 2008 in order to portray a more balanced growth in profits.

“We insist on clear and visible earnings so that investors can follow our growth,” he said, adding that SFS Group is the only CSE listed company that includes a 25 page Management Review/Commentary in its annual report, similar to listed companies in the US, UK and Germany, which clearly analyses by business segment, the objectives and strategies, key resources, risks and relationships, results, prospects and identifies performance measures and indicators used by management.

 

— Low share price frustrates…

All is well and rosy, but SFS Group remains among the most undervalued stocks trading on the CSE, frustrating investors who believe in the company, its management and prospects.

Based on the most recent price of EUR 1.90 on the CSE following the rally witnessed after the profit revision higher and the forecasted EUR 27.4 mln profit for 2007, the 2007E p/e ratio for SFS is four times, a quarter of the 16 multiple at which most other CSE stocks in the Main Market are trading, according to Financial Mirror calculations. SFS also boasts one of the cheapest price-to-book ratios on the CSE at only 1.1 times, compared to a 1.90 multiple for the CSE’s Main Market shares and 4.5 times for the likes of Bank of Cyprus and Vision.

Larkos, however, shows no sign of frustration, insisting that, “our job is to deliver better profits and improve our financial ratios. Sooner or later, the market will correct its gross underestimation of SFS.”

That day should come soon, or, by 2008, when SFS will celebrate its 20^th anniversary and with the fundamentals improving, there is a good chance that SFS Group will be in a jubilant mood, which may involve “special gifts” for its loyal shareholders.